(ii) Denial of Restitution Where the Claimant Has Participated in an Illegal Transaction

Even though a claimant has participated in an illegal transaction it may be possible for him or her to obtain a restitutionary remedy by relying on one of the established grounds of restitution, such as mistake or duress.^{1 3} This is not, however, possible where the claimant relies on the ground of total failure of basis, despite dicta in certain cases to the contrary.^[1] So, for example, in Parkinson v College of Ambulance^[2] the claimant had paid a sum of money to a charity on the understanding that the charity would be able to arrange for him to receive a knighthood. This was an illegal transaction. The knighthood was not forthcoming and the claimant sought to recover the money. Clearly the basis for the payment had totally failed, but, because the claimant had participated in an illegal transaction, he was unable to recover his money by virtue of the illegality defence.^[3]

That restitution will be denied in such cases has been confirmed by the Court ofAppeal in Taylor v Bhail.¹²⁷ The claimant builder had entered into a building contract with the defendant. At the defendant’s request the claimant’s estimate for the work was inflated by ?1,000 to enable the defendant to perpetrate a fraud on his insurance company. The claimant completed the work and, after the defendant had refused to pay for all the work he had done, the claimant sued for breach of contract. His action failed on the ground that he had been tainted by illegality since he was a party to a conspiracy to defraud. Millett LJ also considered whether he could have brought a restitutionary claim for the reasonable value of his services and concluded that he could not because of the taint of illegality. Millett LJ identified two reasons for this conclusion.¹²⁸

• (1) The illegality rendered unenforceable any implied promise by the defendant to pay the reasonable value of the services, in the same way that the express promise to pay is unenforceable. But this is outdated reasoning founded on notions of quasicontract which no longer have any part to play in the modern law of unjust enrichment.^[4] The obligation to make restitution is imposed by operation of law and does not depend upon the implication of any promise to pay. It does not follow, therefore, that because the claimant could not sue on the illegal contract he was necessarily prevented from bringing a restitutionary claim.
• (2) Where the transaction is illegal any enrichment received by the defendant is not unjust, since the denial of restitution ‘is the price which the claimant must pay for having entered into an illegal transaction in the first place’.^[5] But this begs the question. Where the claimant has paid the defendant in the expectation that he or she would receive a benefit in return, and none is forthcoming, the defendant appears to be unjustly enriched at the claimant’s expense. The question then is whether the total failure of basis is sufficient to negate the taint of illegality. The implication of Taylor v Bhail and Parkinson is that it is not.

In Patel v Mirza¹³¹ another reason was given as to why participation in an illegal transaction should defeat a claim grounded on total failure of basis. In that case the claimant sought restitution of money which he had paid to the defendant pursuant to a contract which was illegal because it constituted the crime of insider dealing,^[6] involving the intended use of inside information to profit from the purchase and sale of shares. The illegal purpose was not carried out because the expected inside information was not obtained. It appears, therefore, that there was a total failure of basis. It was recognized, however, that illegality will defeat a claim for restitution for reasons of public policy if the claimant needs to rely on the illegality to establish that the basis for the payment had failed totally.^[7] This is a significant restriction on restitution in the context of claims for total failure of basis, because such claims often arise in a contractual context and the claimant will only be able to seek restitution after establishing that the contract is no longer operating. Although an illegal contract is void, it will only be possible for the claimant to establish such invalidity by relying on the illegality, which he or she will be prevented from doing by the rule in Patel v Mirza, save if the claimant can rely on another reason why the contract is no longer operating.

The Court of Appeal in Patel v Mirza did, however, confirm that the claimant will be able to rely on illegality once the claimant can establish that he or she is no longer tainted by it, by establishing that he or she has withdrawn from the illegal transaction before any part of the illegal purpose has been executed. But, as will be seen below,¹³⁴ the modern interpretation of this withdrawal principle means that it is virtually indistinguishable from the ground of total failure of basis.

The claimant will also be able to rely on the illegality and obtain restitution on the ground of total failure of basis where the claimant is not considered to be as blameworthy as the defendant for participating in the transaction. This is illustrated by Mohamed v Alaga and Co,¹³⁵ where the claimant sued the defendant firm of solicitors for work done in preparing and presenting asylum claims. A contract between the claimant and the defendant concerning payment to the claimant for the introduction of clients to the defendant was illegal, but the restitutionary claim succeeded in respect of the services provided. The services could be severed from the illegal fee-sharing part of the contract because the claimant was less blameworthy than the defendant firm of solicitors, which was assumed to know the rules of the profession.^[8]

In Benedetti v Sawiris^[9] Lord Neuberger acknowledged, obiter, that failure of basis might lie where a contract was ineffective due to illegality. The general rule which defeats a restitutionary claim founded on total failure of basis where the claimant participated in an illegal transaction is difficult to defend. It would be preferable to allow restitution on this ground even if the claimant has been tainted by illegality, so long as it is not of a particularly serious kind^[10] or where allowing restitution would stultify the policy of the law which rendered the contract illegal in the first place, which is the approach adopted in Australia.^[11]

• [1] See, for example, Bloxsome v Williams (1824) 3 B and C 232,235; 107 ER 720, 721 (Bayley J) and Shaw vShaw [1965] 1 WLR 537, 539 (Lord Denning MR).
• [2] [1923] 2 KB 1. See also Berg v Sadler and Moore [1937] 2 KB 158; Wacker [2003] QB 1207, [32] (Kay LJ).
• [3] See Chapter 27. 127 [1996] CLC 3 77. 128 Ibid, 383.
• [4] See United Australia Ltd v Barclays Bank Ltd [1941] AC 1, discussed at p 46, above.
• [5] Taylor v Bhail [1996] CLC 377, 383. 5 [2014] EWCA Civ 1047, [2015] 2 WLR 405.
• [6] 133 See Tinsley v Milligan [1994] 1 AC 340. See p 718, below. 134 See p 353, below.
• [7] 135 [2001] 1 WLR 1815.
• [8] Cf Awwad v Geraght and Co [2001] QB 570 where the claimant was a partner in the firm of solicitors.
• [9] [2013] UKSC 50, [2014] AC 938, [175].
• [10] See p 723, below and GJ Virgo, ‘The Effects of Illegality on Claims for Restitution in English Law’ in WJSwadling (ed), The Limits of Restitutionary Claims: A Comparative Analysis (London: UKNCCL, 1997), 181-2.
• [11] Equuscorp Pty Ltd v Haxton [2012] HCA 7, (2012) 86 ALJR 296.